When the economy is in long-run equilibrium at potential output even though unemployment is not zero, further demand expansion is ________________.

Question

Quizplus · Accepted Answer

When the economy is in long-run equilibrium at potential output, it is operating at the natural rate of unemployment, which includes frictional and structural unemployment but not cyclical unemployment. At this point, further demand expansion would not reduce unemployment significantly but could lead to inflationary pressures, making it generally considered pointless in terms of reducing unemployment further.

When the Economy Is in Long-Run Equilibrium at Potential Output